Hangzhou Youngsun Intelligent Equipment Co., Ltd.'s (SHSE:603901) Low P/S No Reason For Excitement

You may think that with a price-to-sales (or "P/S") ratio of 1x Hangzhou Youngsun Intelligent Equipment Co., Ltd. (SHSE:603901) is a stock worth checking out, seeing as almost half of all the Machinery companies in China have P/S ratios greater than 2.5x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Hangzhou Youngsun Intelligent Equipment

What Does Hangzhou Youngsun Intelligent Equipment's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Hangzhou Youngsun Intelligent Equipment has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Hangzhou Youngsun Intelligent Equipment will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Hangzhou Youngsun Intelligent Equipment's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. Pleasingly, revenue has also lifted 30% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 20% over the next year. That's shaping up to be materially lower than the 23% growth forecast for the broader industry.

In light of this, it's understandable that Hangzhou Youngsun Intelligent Equipment's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Hangzhou Youngsun Intelligent Equipment's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Hangzhou Youngsun Intelligent Equipment maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Hangzhou Youngsun Intelligent Equipment (2 are concerning!) that you should be aware of before investing here.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.